IRS Publication 555

For those of you that might not yet have heard the news, the IRS has chosen to recognize domestic partnerships in the states that have legalized them and have community property laws, like the state of California where we live. They've also made their decision retroactive to 2007. For most people, this may not affect their taxes at all for the years 2007 to the present, but for some small group of people who are registered domestic partners, live in a community property state, and have disparate incomes between the two individuals in the partnership, this new ruling from the IRS may actually have a huge benefit.

The technical information can be found in the IRS publication 555. If you're using an automated program to do your taxes (like I am with Turbo Tax), you may have to wait to update your taxes. Specifically TurboTax claims the IRS is going to issue an update to 555, and they will issue their update after the new update from the IRS is published.

So what's the big benefit in 555? It allows you to allocate community property between the two partners on the tax return. For example wages is one form of income that can be split between partners. Let's take an imaginary couple, one that makes $10,000 a year and one that makes $100,000 is W-2 wages. Under the new ruling, each member of the partnership can record $55,000 in wages, equally splitting their incomes (and hopefully reducing the overall tax liability). That's good news for couples like ours. For now, I'm going to hold on and see what happens in this latest IRS update, and if TurboTax makes it easier to amend our returns. But if this affects you, you might want to talk to an accountant and see if you have any benefits from this ruling.

Disclaimer: I'm not an accountant, and you should verify all details with the IRS and your own accountant.